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Wednesday, May 30, 2012

Household Production: Levels and Trends

Since the early days of GDP accounting, and in every intro econ class since then, a standard talking-point is that measures of economic output leave out home production. Further, if two neighbors stopped doing home production and instead hired each other to do housework and yardwork, total GDP would rise because those activities were now part of paid market exchange, even though the quantity of housework and yardwork actually done didn't rise. But how much is household production actually worth in the U.S. economy and how has it changed over time? Benjamin Bridgman, Andrew Dugan, Mikhael Lal, Matthew Osborne, and Shaunda Villones tackle this question in Accounting for Household Production in the National Accounts, 1965–2010, which appears in the May 2012 issue of the Survey of Current Business. (I found this study at Gene Hayward's HaywardEconBlog.) Here are a few points that jumped out at me (footnotes omitted).

How can one estimate the value of home production?
Get an estimate of hours devoted to home production, and then multiply by the wage that would be paid to domestic labor. "To measure the value of nonmarket services, we make use of two unique surveys that track household labor activities and apply a wage to the total number of hours spent in home production. One of these surveys is the Multinational Time Use Survey (MTUS), which combined a number of time use surveys conducted by academic institutions into a single data set. These surveys were taken sporadically between 1965 and 1999. The other is the American Time Use Survey (ATUS) produced by the Bureau of Labor Statistics (BLS). This survey was taken annually between 2003 and 2010. ...

How does the value of home production relate to GDP?
"We find that incorporating home production in GDP raises the level of GDP 39 percent in 1965 and25.7 percent in 2010."

Why has the value of home production fallen over time?
Fewer hours spent in home production over time, and the wage of household workers relative to other workers in the economy has fallen. "The impact of home production has dropped over time because women have been entering the workforce. This trend is driven by an increasing trend in the wage disparity between household workers and employees (that is, the opportunity cost of household labor)."

How would including home production in national output alter the growth rate of this expanded definition of GDP over time?"Because standard GDP does not account for home production, some of the increase over time in GDP will be due to women switching from home production to market-based production. Our adjusted GDP measure includes the unmeasured home production, so the increase in GDP that occurs due to substitution from home production to market-based production will be smaller. During 1965 to 2010, the annual growth rate of nominal GDP was 6.9 percent. When household production is included, this growth rate drops to 6.7 percent."

How does time spent in home production vary with income level? How would including home production in output affect the inequality of income?
"We find that home production hours do not vary with family income: for women, who contribute to the bulk of home production hours, the correlation between family income and home production is about 0.01. Therefore, adding home production income to family income is essentially the same as adding a constant number to family income, which will raise the income of low income families proportionately more than high income families, leading to a decrease in inequality. This finding is consistent with earlier work in this literature ..."

What are the gender patterns for time spent in home production?
"In 1965, men and women spent an average of 27 hours in home production, and by 2010, they spent 22 hours. This overall decline reflects a drop in women’s home production from 40 hours to 26 hours, which more than offset an increase in men’s hours from 14 hours to 17 hours."

What is the connection between income and hours of household production?
Those with more income spend tend to spend slightly more time on home production. "Averaged over the years 2003 to 2010, the home production for women (men) in the lowest income category was 32.2 (23.3) hours per week, while in the highest income category it was 26.3 (19.0) hours per week."